Transforming Credit Culture Can Bring Dramatic Impact
Collateral provides the foundation for a free-flowing credit market. Land and buildings are often used to secure loans, thereby reducing potential losses for lenders. But what about the millions of borrowers who don’t own these assets? That’s where IFC comes in.
“We’ve worked with partners in more than 20 countries to help establish the legal frameworks that enable borrowers to use movable assets, such as inventory, crops or equipment, to guarantee loans,” said Alejandro Alvarez de la Campa, IFC’s Global Product Leader of Secured Transactions and Collateral Registries. “These systems have a dramatic impact on people’s ability to secure financing to grow their businesses, create jobs, and raise their standard of living.”
In Latin America and the Caribbean, web-based collateral registries are helping transform the credit culture, especially for businesses owned by women and younger entrepreneurs who may not have credit histories or banking relationships.
Financial district of Santa Fe in Mexico City
“In our country, like most in this region, about 60 percent of businesses are small and medium enterprises,” said Michael Singh, CEO of Belize’s Ministry of Trade, Investment Promotion, Private Sector Development and Consumer Protection. “When many approach the formal financial sector they are not recognized. Opportunities need to be created for small and medium enterprises to use their assets to borrow money.”
At a recent conference in Costa Rica sponsored by IFC, in collaboration with the Institute of the Americas and the Government of Costa Rica, nearly 100 representatives from governments, central banks, multilateral development banks, and companies shared expertise on secured transaction laws.
Across the region, impressive gains are being made. Mexico has implemented an electronic movable collateral registry and 97 percent of its registrations are for loans granted to SMEs. In August, Colombia enacted a new Secured Transactions Law and expects to have a functioning collateral registry by 2014. Draft bills to establish modern secured lending systems have been presented in Costa Rica, El Salvador and Peru. Haiti, Guyana, and Jamaica have also begun secured lending reforms.
Speaking at the conference, Costa Rica’s Vice President, Luis Liberman, said his country’s banking authorities may soon be able to serve people who previously did not meet the requirements for credit. “Truly, this will be so beneficial that we are surprised that it has not yet been implemented to continue developing our economy.”
For more information contact Vanessa Bauza, Latin America and Caribbean Dept./Communications Practice Group.